Will We Get Tax Relief If Tax Was Deducted At Source In Canada?

Indian Company has given loan, to its subsidiaries situated in Canada.Subsidiaries in Canada pays interest, to Indian parent Company after deducting Tax as per Canadian Taxation Laws.My queries are:Will Indian Parent Company be eligible for any benefit of Tax deducted by subsidiaries?Will such interest income will be taxed in the Hands of Indian Company ( resident- global income). Sargam Iyer , Mumbai
The interest income is definitely taxable in the hands of Indian company as the global income of a resident is taxable under Indian Income Tax Act. However , since there is Double Taxation Avoidance Agreement signed between Indian and Canada , there is specific provision under DTAA to avoid such double taxation.

Clause 3 of Article 23 provides as under

3. In the case of India, double taxation shall be avoided as follows :

(a) The amount of Canadian tax paid, under the laws of Canada and in
accordance with the provisions of the Agreement, whether directly or by
deduction, by a resident of India, in respect of income from sources within
Canada which has been subjected to tax both in India and Canada shall be allowed
as a credit against the Indian tax payable in respect of such income but in an
amount not exceeding that proportion of Indian tax which such income bears to
the entire income chargeable to Indian tax. ..

Therefore it is clear if Canada takes tax on an income which is also taxable in India, taxpayer will be given credit of tax paid in India. Under income tax law, there is specific provision u/s 90 of the I T Act which provides for the method of computation of credit in case any income has already been taxed in a country with which India has signed DTAA . You should read more about this in following two articles:

1. Claim Relief u/s 90 of The I T Act!
2. DTAA supersede I T Act
   

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Is Payment To US Based Writer Or Director By Animation Movie Producing Company Liable To TDS?

One of our clients is in to the business of producing animation films for which it enters into contracts with non resident US Individuals in various capacities as writer, director, distributor co-producers etc. Whether the payments to such individuals be considered as Technical Service Fees for TDS. If yes, then what rate should be charged considering DTAA & IT Act. If no, then what procedure should be followed. Is there any provision for no deduction or lower deduction of tax. if yes, then wats the provision & the procedure. An early reply is sought. Amaresh, Bangalore

You have asked the question in very general manner because the decision whether a specific service falls under technical service is to be seen case to case. Let us first see what is the meaning of Technical Service as explained under Income Tax Act .As per Explanation to section 9(1)(vi) of the I T Act , the fees for technical service means

Explanation 2.For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) ....

So basically technical services mean

* Managerial services
* Technical services
* consultancy services
* Services of providing technical or other professional manpower

None of these are related to service given by a writer,director ,producers or distributor who are all USA based non resident individual as per your question. Therefore prima facie' the payments to them for any services does not fall within technical fee .

However , there still lies the scope of taxing this income in hands of non resident under section 9(1)(i) which is very widely worded

all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

Since the animation movie is being produced in India, the source of income is certainly in India. Therefore fee paid to US bases non residents are taxable in India as per I T Act .

But saving grace is DTAA between India and USA !

It is legally settled that DTAA overrides I.T Act .Following cases laws should be referred to in this regard

Union of India vs Azadi Bachao Andolan 263ITR 706 SC

CIT vs P.V.L. Kulandagan Chettiar [2004] 267ITR654 SC

So we have to see what is the Double Taxation Avoidance Agreement in this regard. As is clear the services given by Writers,Director,Distributor and Producer do not fall within the definition of technical fee , I find the services given by these individual falls under the term" Independent personal services" as defined in Clause 15 of DTAA between US and India. This clause says

Article 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :

(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or

(b) if the persons stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.

2. The term professional services includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

From the aforesaid Clause 15 of DTAA , it is clear that :if

* Writers ,Directors ,Distributors are Individuals
* They are tax resident of US .
* They are having no fixed base in India or
* They are not in India for 90 days.

In that case, the income from performance of any professional or independent services in India is taxable only in US . Therefore, no tax is deductible at source in India.

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Can One Claim Relief For Tax Paid In A Country With Which India Has No DTAA?

I worked in Hongkong for the period of 1/4/2007 to 30/6/2007 on Salary basis in a company. I was transferred in India in July 2007 in a branch of the same company, when i left Hongkong in July 2007 the Income Taxes is paid by me to the Government of Hong Kong. Now i wanted to file my return for the Financial Year 2007-08.Is their is any DTAA's of India with Hong Kong, if yes, how my tax liability will be calculated ?Is there any benefit will be available to me in respect of taxes paid by me in HongKong ? Is Hongkong is Part of China for DTAA's point of view ? In new form of the return thier is no column for showing DTAA's then how I should file my Return ? Arvind Chauhan , Faridabad

Your salary earned in Hongkong is definitely taxable in India and India has no treaty with Hong Kong for avoidance of double taxation. I presume , you were out of country for six months only ,you are resident in India .Still , you should not worry because Indian Income Tax Act has provisions of relief from double taxation of income even in cases where income is earned and taxed in a country with which India has no formal "Double Taxation Avoidance Agreement".

Section 91 of the I T Act provides relief from double taxation in such type of cases which is given as under :

91(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal

The general rule of computation of relief is as under:

1. Ascertain doubly taxed income .
2. Ascertain tax by applying Indian rate of tax as well as rate of foreign country separately.
3. Which ever is less , relief is given to that extent.

You can read more about computation of relief u/s 90 or 91 here.

Certain other points need your attention are :

• Doubly taxed income has not been defined ,but as expressed in a court decision by Bombay High Court in CIT v. Bombay Burmah Trading Corpn. Ltd. [2003] 259 ITR 423 , it means only that portion of income on which tax has been paid by the Resident in India which was subjected to taxation abroad also.
• As per explanation given under Section of the I T Act ,the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this Chapter , by the total income;

Where in Return Can You Claim DTAA?
In income tax returns , there is definitely fields for claiming relief from DTAA.You will find field for claiming relief u/s 90 or 91 after the field for claiming relief u/s 89 of the I T Act. Compute the relief , and claim that much amount in those column.

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Does Belgium Company Gets Tax Relief For TDS on Interest in India?

Is Withholding Tax applicable on the interest remitted abroad by an Indian Corporate and can this be claimed back by the party receiving the money in the foreign country from the tax department. How would this work in case of the DTAA between India and Belgium.Ruby Vazirani

The Indian corporate will have to deduct the tax under section 195 if the loan was borrowed from non resident company and loan was utilised for any business carried out in India. This is on account of section 9

(v) income by way of interest payable by

(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

Since that interest accrued in hand of non resident company is taxable in India , the payer is required to deduct tax at source.

What will be the rate?

Article 11 of the DTAA signed between Indian and Belgium is regarding interest . The said article is as under :

Article 11 : Interest - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State the tax so charged shall not exceed :

(a) 10 per cent of the gross amount of the interest, if such interest is paid on any loan of whatever kind granted by a bank; and

(b) 15 per cent of the gross amount of the interest in all other cases.

Procedure for availing such lower deduction?

Circular No. 553, dated 13-2-1990 was specific to the relief to Belgian resident under DTAA . The said circular stated as follows

I. RELIEF FROM INDIAN TAX TO THE BELGIAN RESIDENTS

In respect of dividends, interest, royalties and fees for technical services arising in India to a resident of Belgium, the payer of these incomes can deduct the tax at source at the reduced rates specified in article 10, 1 1 or 12 of the Agreement, as the case may be. The lower rate of tax will be applicable only if a certificate is granted by the concerned Belgian tax office that the beneficial owner of income is a resident of Belgium under article 4 of the Agreement. For this purpose, the Belgian resident will be required to obtain a certificate of residence from the Belgian tax office in Form No. 276, Conv. One copy of this form must be submitted to the concerned Assessing Officer and the second copy must be filed with the Indian payer of the income. The No Objection Certificate for the remittance of these items of income from India will be issued by the Assessing Officer only after tax has been deducted at source by the payer. If, for any reason, tax is deducted at source at the rate higher than that prescribed in the Agreement, a refund of the excess tax can be obtained by lodging an income-tax return with the concerned Income-tax/Assessing Officer as soon as possible and in any case before the expiry of a period of two years from the end of the relevant assessment year.

Can You Get Tax Relief in Belgium?

The DTAA has specific provision for giving credit of tax which is deducted in India from interest income accrued in India . The said article is as under ;

Article 23 : Elimination of double taxation - 1. The laws in force in either of the Contracting States will continue to govern the assessment and taxation of income in the respective Contracting States except where express provision to the contrary is made in this Agreement.

2.......
3. In the case of Belgium, double taxation shall be avoided as follows :

(a).........

(b) (i) Where a resident of Belgium derives items of his aggregate income for Belgian tax purposes which are dividends taxable in accordance with paragraph 2 of Article 10, and not exempt from Belgian tax according to sub-paragraph (c), interest taxable in accordance with paragraph 2 or 6 of Article 11, or royalties taxable in accordance with paragraph 2 or 6 of Article 12, the Indian tax levied on that income shall be allowed as a credit against Belgian tax relating to such income in accordance with the existing provisions of Belgian law regarding the deduction from Belgian tax of taxes paid abroad.

There you are. It is under DTAA, that interest which was subject to TDS in India can be claimed as credit in Belgiun as per Article 23(b )of the DTAA between India and Belgium

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How To Get Relief From Double Taxation ?

In case , one earns income which suffers tax outside India, the Income Tax Act has clear provision of relief from such double taxation. The relevant provision are contained in section 90 and section 91 of the I T Act.

Section 90 is applicable for the cases when the tax has been paid in a country with which India has signed comprehensive double taxation avoidance agreements. There are Double Taxation Avoidance Agreements with as many as 79 countries .Comprehensive agreements are signed with these countries and Limited agreements with these countries.

Section 90(2) of the I T Act provides that the provision of the Income Tax Act shall apply in those cases where DTAA s signed , to the extent is more beneficial to the person.CBDT's circular No 333 dt 2.4.1998 [137 ITR 1 &2] clarified that whenever there is any conflict noticed on an issue between the provisions contained in both statutes , DTAA shall prevail over the statutory provision of the I T Act. In this regard , Supreme Court held that DTAA constitute special provisions which would prevail over general provision of the I T Act and effect must be given to the special provision of the DTAA even if they are in conflict with general provision of the I T Act.Two important case laws are as under

• Union of India vs Azadi Bachao Andolan 263ITR 706 SC
• CIT vs P.V.L. Kulandagan Chettiar [2004] 267ITR654 SC

What if there is DTAA agreements?

In that case ,section 91 of the I T Act provides relief from double taxation. Provision of Section 91 of the I T Act says

“(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal”

The general rule of computation of relief is as under:

1. Ascertain doubly taxed income .

2. Ascertain tax by applying Indian rate of tax as well as rate of foreign country separately.

3. Which ever is less , relief is given to that extent.

You can read more about computation of relief u/s 90 or 91 here.

Certain other points need attention here :

1. Doubly taxed income has not been defined ,but as expressed in a court decision by Madras High Court in CIT vs O.VR,SV.VR Arunachalam Chettiar [, it means only that portion of income on which tax has been paid by the Resident in India which was subjected to taxation abroad also.

2. As per explanation given under Section of the I T Act ,the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this Chapter , by the total income;

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Is Capital Gains Earned Out Side India Taxable in India?

One of my relatives has returned to India about 6 years back after residing in USA for about 15 years. His Indian Income comprises of Interest on Bank Deposits and on which he is paying Indian Income-tax. His dividend income- is exempt. His one residential house property does not yield any Income.In USA, his sources of Income is Bank Interest, Dividend on Shares of U.S. Companies, and Capital Gains on sale of Stocks of US Companies. He has been paying U.S. Income-tax on all his Income in USA.Now, since he is Resident in India, in view of DTAA Provision, does he need to show his income abroad as he is already paying tax in USA ? PLEASE EXPLAIN IN DETAIL.JAGADEESH BHARADWAJ

Since your relative is in India for last six years, therefore he is indisputably resident of India. For resident of India , scope of total income is provided u/s 5 of the I T Act. which is given as under

5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or

(c) accrues or arises to him outside India during such year :

You will find that for Resident ,even income which arises or accrues to him outside India is taxed.

The double Taxation Avoidance Agreement signed between India and USA , has Article 10, 11 and 13 which deal with dividend,interest and capital gains

ARTICLE 10 - Dividends - 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State,

ARTICLE 11 - Interest - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed :

ARTICLE 13 - Gains - Except as provided in Article 8 (Shipping and Air Transport) of this Convention, each Contracting State may tax capital gains in accordance with the provisions of its domestic law.

It is clear from the aforesaid articles of DTAA also that the income under those heads ,are taxable in both States or in the states where the person is resident of .

Therefore , my opinion

1. Your relative will have to file return of income if income is above exemption limit.
   
2. Your relative will get relief from double taxation of income under section 90 of the i t Act. you can read more about this here.

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Will I Be Taxed In India For My Dutch Salary?

I am an Indian resident working with a multinational company at the Hague - the tenure is for six months - I have got a Dutch resident permit for this period and have paid tax to the Netherlands Government at the rate of 42%. I understand that India has a DTAA with India - hence, I presume that I do not have to pay tax (rate: 32%) to the Indian government. Is my understanding correct? kakoli

There is double taxation avoidance agreement between India and Netherland. Article 15 of the agreement deals with salary & wages. The said article is given as under

ARTICLE 15 - Dependent personal services - 1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of one of the States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of one of the States in respect of an employment exercised in the other State shall be taxable only in the first-mentioned State if :

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State."

Therefore as per general rule in Article 15(1) since you are carrying employment in Netherland , it should be taxed in Netherland only . However , I find that if you do not stay in Netherland for 183 days in the year in which you earned the salary ,Article 15(2) makes your salary taxable only in India. Therefore, you must stay in Netherland for at least 184 days even if the employment contract is only for 180 days (6 months).

What happens if the Income become taxable in India ?

If the salary earned in Netherland becomes taxable in India, there is nothing to worry as there is relief mechanism provided in DTAA in Article 23 ( 4) as under

Article 23(4). In India, double taxation shall be eliminated as follows:

Where a resident of India derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the Netherlands, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the Netherlands, whether directly or by deduction; ...."

Section 91 of the I T Act provides clear way of computing the tax relief in case of double taxation. To know mpre aboiut computation of tax relief Read this.

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Am I Eligible For Relief For Tax Paid Abroad?

I came in for employment purpose and working here. Now after completing my 3 years tenure I am expected to come back India finally by 31.07.2007. What would be the Tax liability on me in India as I would not be a NRI for the Financial year 2007-08 under the following income structure and tax paid in Fiji.

1. My total salary income in Fiji (April07 to July-07)around Rs.379184/- + Rs.189592/-(payment for accrued overseas leave ). Tax paid in Fiji Rs.136506/-
2. My Indian salary for remaining period around Rs180000/-. What would be my Tax liability in India?.
   Whether I am entitled to get any benefit under Section 91 0f I.T.Act?
3. Finally how much Tax I have to pay.
   vdssshukla........

First of all , you should note that since you will come in India by 31/7/2007 , you will stay in India for more than 182 days and thus become Resident as per section 6 of the I T Act.As soon as you become resident , your global income i.e all income whether earned in India or abroad shall become taxable in India . Accordingly your salary plus the accrued leave salary shall become taxable in India . Therefore , total taxable salary for Fy 2007-08 should be Rs 748776(Rs.379184/- + Rs.189592 +180000). Tax liability (without considering any saving for 80C deduction) on Rs 748776 will be Rs 1,78 ,872.

Will You get benefit of section 91 ?

Yes, it seems that section 91 of the I T Act is applicable in your case. The said section 91 is exactly to mitigate the hardship of double taxation on any income which has been taxed in a country with which India has no Double Taxation Avoidance Agreement signed. For those country with which DTAA is signed, section 90 is there in Income Tax Act.The section 91(1) is given as under:

If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal"

How to compute the tax relief?

Total income in India 1,80,000

Income earned outside India 5,68,776

Total Income 748776

Indian tax 1,78,872

Avg. tax on doubly taxed income (178872 x 568776)/748776 = 135872

Therefore relief claimable u/s 91 is Rs 1,35,872

The third answer is (without considering deduction under chapter VI-A which you may claim if investments are done ) , you will have to pay Rs 43,000 more in India.

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Is Royalty Received By Norway Registered Company Taxable In India?

We are a software company(Registered as private limited company in India) and 99% of the shares are held by our Parent company registered in Norway. We are engaged in software development and the parent company wants us to pay Royalty on Sales @ 30%

• Question 1: Whether the royalty paid to our parent company is taxable in India in the hands of the parent company?
  
• Question 2: If so whether tax is payable on the gross amount or not and at what rate (as per DTA no rate is specified)?
  
• Question 3: Whether withholding tax is applicable?

Your Email : subbaiyapb@gmail.com

The royalty payments are made by the Indian resident company to its parent Non Resident company. In that case, only point to see if the payments made by Indian company to Norway registered company is taxable income in India or not. The charging section for Non Resident is section 5(2) of the I T Act which is given as under:

" the total income³³ of any previous year of a person who is a non-resident includes all income from whatever source derived which

• (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
• (b) accrues or arises or is deemed to accrue or arise to him in India during such year

Deemed to accrue or arise in India is given in section 9 of the I T Act .There is specific provision related to Royalty in section 9(vi)(b) of the I T Act. The said provision states

(vi) income by way of royalty payable by

(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

Thus ,it is clear that royalty payments by a person resident in India is deemed to accrue or arise in India if does not fall within exception provided in the said provision .Hence royalty to be paid by you to parent company is chargeable to income tax in India.

Withholding Tax @ what Rate

The Double Taxation Avoidance Agreement with Norway provides that the payment of royalty can be taxed in both India and Norway as per the respective tax laws. The tax rates in case of royalty income received by a foreign company are given in section 115A(1)(b) of the I T Act and also the First Schedule of the Finance Act. According , to this , the royalty payments are taxable 20% if the agreement to transfer the right was done between 1/6/1997 to 1/6/2005 and @ 10% if the agreement was signed after 1/6/2005.

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Is Rental Income of Property At Dubai taxable in India?

I am a Indian Citizen.I am going to buy a apartment in DUBAI.I can remit $100000 per year outside India.What will be the tax implications on the rental income that I will receive and on the capital gains tax.As per doble taxation treaty India has with Dubai, I am liable to pay tax in India on the rentls income and capital gains tax.Please suggest.SUMIT AGGARWAL.

Dubai is one of seven Emirates that constitute United Arab Emirates.The taxation on income under I T Act depends on residential status of the person and the Double Taxation Avoidance Agreement(DTAA) signed between India and another country. It is settled law that DTAA supersede I T Act if same is more beneficial to the tax payer.To know more about it , read this posting.

Regarding Rental Income Taxation
There is DTAA between India and UAE and Article 6 of the said agreement deals with rental income of an immovable property.The said Article 6 is as under......

ARTICLE 6 - Income from immovable property - 1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2.....................................

3. The provisions of paragraph (1) shall also apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs (1) and (3) shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services."

Therefore, if you are Resident of India (contracting state) and having immovable in Dubai (Other state), house property is taxable only in UAE (other state). In other words, the income from rental of an immovable property in UAE is not taxable in India.
Capital Gains on Immovable Property.

Article 13 of DTAA deals with capital gains of a resident . It prescribes ,similar to article 6, that capital gains on sale of immovable property is taxable in the state where the property is situated. Read the excerpt below:

"ARTICLE 13 - Capital gains - 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph (2) of Article 6 and situated in the other Contracting State may be taxed in that other State. "

Therefore, in nutshell , if you are resident in India, both rental income as well as capital gains on immovable property are taxable in Dubai.

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Let German Tax Authorities Go By DTAA?

I am German. Since 2005 ,I was sent for work from my German company to a company in India (L&T). In the contract were written: "All tax according to the Indian law has to be paid by L&T".At the end of 2005 I received a tax certificate from L&T with the content that 10% tax of the amount, transferred to German account, has been paid.Later I had to declare my tax in Germany and I handed over the received certificate from L&T to avoid income tax in Germany.Some weeks later tax authorities in Germany refused the certificate and expect another certificate which declares the payment of my income tax.Now L&T is telling 10% is standard practice.What is right? hawand@web.de

I presume you have given some kind of managerial or technical services to L & T and as per the agreement they have deducted tax @ 10 % of gross amount . First of all , it is to be seen that if the tax was rightly deducted and what are the provision of Double Taxation Avoidance Agreement applicable in case of taxation of technical fees.

Article 12 of the DTAA signed between India and Germany relates to royalties and fees for technical fees. The provision is given as under

ARTICLE 12 - Royalties and fees for technical services - 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or the fees for technical services.

3..............................

4. The term fees for technical services as used in this Article means payments of any amount in consideration for the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 15 of this Agreement."

The aforesaid provision in Article 15(2) clearly shows that L & T rightly deducted the tax at the rate of 10% from the gross amount of technical fee paid to you. Since they have deducted the tax, it was their duty to issue you a certificate of deduction if tax at source.They have rightly issued the certificate.

Now comes the question of relief to be given by Germany from double taxation of income as per DTAA. Article 23 of DTAA provides such relief in following words:

ARTICLE 23 - Relief from Double taxation - 1. Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows :

(a) Unless foreign tax credit is to be allowed under sub-paragraph (b), there shall be exempted from German tax any item of income arising in the Republic of India and any item of capital situated within the Republic of India, which, according to this Agreement, may be taxed in the Republic of India. The Federal Republic of Germany, however, retains the right to take into account in the determination of its rate of tax the items of income and capital so exempted.

.........................................................

(b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German tax payable in respect of the following items of income arising in the Republic of India and the items of capital situated there, the Indian tax paid under the laws of the Republic of India and in accordance with this Agreement on :

(i) dividends not dealt with in sub-paragraph (a) ;

(ii) interest ;

(iii) royalties and fees for technical services ;

(iv) income in the meaning of paragraph 4 of Article 13 ;

(v) directors fees ;

(vi) income of artistes and sports persons.

As one can see , under DTAA , Artcle 23(b) , credit for tax paid in India for income arising under the head "royalties and fees for technical services " has to be given by Germany.

You should take up the matter with German tax authorities and ask for exact reason they are not giving credit for the tax deducted by L & T and the certificate issued by them. In case , German authorities suspect that tax was not paid, they can confirm it from the company or the tax authorities in India.The certificate itself shows who are the tax authorities responsible in case case tax deducted at source.But , I do not find any reason for such suspicion as L&T is a very reputed and nice company.

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Is My Salary Earned in UAE taxable in India?

I am planning to return to India for employment by the mid of April 2007. I joined my present organisation in UAE on the 10th of October 2006. Prior to this I was working in India. I wish to know what are the income tax implications. Do I need to declare my income for the period Oct 06 to March 07 while filing the returns for 2006-07. Please advice.: kirankshetty@hotmail.com

India has Double Taxation Avoidance Agreement with UAE. According to Article 15 of the DTAA relevant to salaries or remuneration , it is provided that generally the salary shall be taxable in the state in which employment is exercised. The relevant portion of the Article 15 of the DTAA is given as under :

Article 15 - Dependent personal services - 1. Subject to the provisions of Articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph (1), remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

• (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant previous year or year of income, as the case may be ; and
• (b) the remuneration is paid by, or on behalf on, an employer who is not a resident of the other State ; and
• (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

Coming to your specific question, I presume [in absence of complete facts] your salary will be paid in UAE by an organisation having permanent base in UAE. Therefore the conditions of Article 15(2) is not satisfied. Therefore , according to Article 15(1) your salary for the period you worked in UAE and paid by the organisation having permanent establishment in UAE is taxable only in UAE.

Should You show the salary earned in UAE in the Return filed in India?
Since you are resident in India if your stay in India is for more than 182 days in FY 2006-07, you are liable to file return of Income if your total income was more than Rs 1 lac .I suggest you should include in computation of income your salary earned in UAE , but claim relief under section 90 of the I T Act .Read here more about this.

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Claim Relief u/s 90 of The I T Act!

I am a resident Indian. Live in India, i visit USA on short term about 6months in a year, i get paid my salary in India and I get paid for my daily expenses in US. ie., per diem or allowances.My salary what is paid in India is already taxed by payroll.Secondly my salary what is paid in India is again taxed in US. This amount being deducted from my allowances.Today I am filing US returns with dependents.Questions I have is .....Any idea how to get the refund of double taxation, what is procedure , what is the form, can it be done in US or in India.cedar931@yahoo.com

As per DTAA signed between India and USA , same income which is taxable in both the countries are eligible for tax relief. As per yopur question, you have paid tax in USA . Therefore , you can claim tax relief from India u/s 90 of the I T Act. But that income has to be added to your income shown in the Return filed in India. The computation of the tax relief is a under

• Let us say you earn taxable X amount in India
• You earned Y amount in USA .
• You paid Z amount in USA on Y amount.
• Let us say tax at Indian rate on total income(X+Y) is T
• Then relief u/s 90 shall be as follows

Relief = T x Y /(X+Y)

The only form you require is Return of income tax .Fill it with evidence of TDS in USA .Claim relief under Section 90 of the IT Act. And you need to read this answer I already given on this blog.

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